A closing balance is an amount of funds your business has at the end of a particular chosen accounting period — a day, a month, a quarter or a year. Once you calculate the closing balance, you pass it on the next accounting period and the figure becomes the opening balance for that period. For example, if your closing balance is £15,000 for 31 December 2019, your opening balance for 1 January 2020 will also be £15,000.
A closing balance is also referred to by abbreviations c/d and c/f, meaning ‘carried down’ and ‘carried forward’ as it is moved on to the next accounting period.
An opening balance has also its own abbreviations — b/d and b/f, meaning ‘brought down’ and ‘brought forward’ as it is carried on from the previous accounting period.
Closing balance formula and closing balance example
To calculate your closing balance you need to take the opening balance, add what you earned, and subtract what you spent. Let’s go through an example.
Andrew has a catering business operating for 2 years by now and for 1 January 2019, his opening balance is £5,000. Here is what the earnings and spendings look like for 2019.
|Opening balance — £5,000||Salaries — £5,000|
|Services rendered — £10,000||Creditors — £5,000|
|Loans — £5,000||Loans — £4,000|
|Debtors — £5,000|
Going a simple way, to count the closing balance for 31 December 2019, Andrew takes the opening balance (£5,000), adds what his company earns(£10,000 + £5,000 + £5,000) and subtracts what he spent (£5,000 + £5,000 + £4,000).
£5,000 + £20,000 - £14,000 = £11,000
and this is the closing balance figure.
Speaking accounting terms, here is how the closing balance is counted: the debit side is bigger than the credit side and equals £25,000. For further analysis, the side must be made equal or, in other words, balanced. The credit side is £14,000 and the difference between them is £11,000 and this is Andrew’s closing balance for 31 December 2019.
This balance is called debit balance because the debit side was bigger. If the credit side turns out to be bigger, such a closing balance is called credit balance.
Of course, it is a basic example to illustrate how the counting is done. But the bigger the business, the more complicated the counting is. Online bookkeeping and accounting can handle the task for you.
Closing accounting and banking balance
The closing balance term is used both in accounting and in banking.
An accounting closing balance is a difference between your credits and debits kept in the ledger. A banking closing balance is an amount in credit and debit in your bank account.